Consumer confidence rises

The Nationwide Consumer Confidence Index rose five points in September in spite of the unrest in the financial markets. However, the index does not cover the period when there was the initial run on Northern Rock which is likely to impact on consumer sentiment. Early indications suggest that this has dented consumers' confidence in the current economic situation which could feed into overall confidence in the coming weeks.

The Present Situation Index (how consumers feel about the current economic and employment situation) rose six points to 102, suggesting consumers are upbeat about the current situation, whilst the Expectations Index (how consumers feel about the economic and employment situation in six months time) was also more upbeat, bouncing back after the dip in August.

The Spending Index (consumers' willingness to spend) also recovered in September almost completely reversing the seven point fall seen in August. The Spending Index now lies at 85, which is 15 points lower than a year ago but above its three month average of 83.

The UK Nationwide Consumer Confidence Index uses a similar methodology to that of the US Conference Board, the most highly regarded Consumer Confidence Index in the US, widely acknowledged as a key US economic indicator. Nationwide's monthly survey is compiled in partnership with TNS.

Fionnuala Earley, Nationwide's Chief Economist, said: "The pick up in confidence has been largely driven by confidence in the labour market. When people feel secure in their employment it is perhaps not surprising that their general confidence levels are more robust. The effect of the recent financial turmoil on overall economic, and hence labour market conditions, is therefore crucial to consumers' confidence going forward. Early indications suggest that consumers may have been more affected by the initial run on Northern Rock, but any lasting effects will be dominated by the impact of recent events on the real economy."

Confidence likely to be subdued going forward

The recent turmoil in the financial markets will almost certainly have some impact on confidence going forward. Early indications suggest that consumers' confidence about the current economic situation was negatively affected at the time Northern Rock was experiencing problems.

Positive sentiment about the current and future employment situation drives confidence

Sentiment about employment has been the main driver of the increase in confidence. Six in ten (60%) of consumers are positive about the number of jobs currently available - up from half (51%) in August. At the same time, the number of people who are negative about the number of jobs currently available has fallen from 25% in August to 19% in September - its lowest level since May 2005.

House price expectations moderate further

Peoples' expectations of house price growth moderated in September with consumers expecting house prices to increase 3.2% over the coming six months - down from 3.8% in August. Consumers' house price predictions continue to be in line with Nationwide's expectations of cooling house price growth during the rest of 2007.